• AUD/EUR continues to approach its two-year lows (~0.6150) below which brings the August 2015 lows near 0.6050 into view (and below that the 2009 lows near 0.6000)
• The inconclusive Italian general election result, with weeks of uncertainty ahead, is not comparable to the 2017 French Presidential election where a victory for the far-right Marine Le Pen could have posed an existential crisis for the Euro.
• This is despite the fact the two parties who fared better than expected and should have a role in a new government (League and Five-Star) have previously espoused anti-EU/anti-Euro views. There is limited public support for Italy exiting the EU or Euro-area and fall out from the election should be limited.
• The ECB is not expected to make its intention clear with respect to when it will end its QE bond buying programme at least until June.  Assuming it will finish it in September or soon thereafter, NAB expects further Euro strength in H2 2018 and 2019, with ECB policy rates expected to start being lifted in 2019.
• The Euro is still slightly ‘cheap’ on a valuation basis and is likely to move from an ‘undervalued’ to ‘overvalued’ position in the coming two to three years, aided by further weakness foreseen for the US dollar with the rising ‘twin deficits’ continuing to weigh.
• NAB continues to forecast a move below 0.60 in 2019 and to below 0.55 in 2020

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